Unpaid Internships Are Risky Business

The unpaid internship has become a fairly routine step toward many college students’ goal of obtaining a dream job in a dream industry. For employers, these internships provide a source of fresh talent and students eager to learn. Interns also seemingly win, gaining marketable experience that could potentially lead to a great position. A recent federal district court decision, however, might make employers re-think the unpaid internship.

Judge William H. Pauley III recently ruled that Fox Searchlight Pictures violated state and federal minimum wage laws by not paying production interns who worked on the set of the movie “Black Swan.” The judge found that the interns were acting as regular employees in their work on the movie and should have been paid as such. Key to the judge’s decision was that the internship did not create an educational, teaching environment. The interns received no benefit from their labor, while the movie studio reaped the rewards of the interns’ hard work.

In this case, the interns performed basic administrative work like running errands, making copies, answering phones, taking lunch orders, taking out the trash, and assembling office furniture. According to the judge’s opinion, this work provided more value to the company than to the interns. The interns sued Fox Searchlight Pictures, alleging that these basic chores were usually done by paid employees and, as such, the interns should have been paid for this work. The judge agreed. He noted that the interns received some benefits, such as resume listings and job references, but that their work was not for their educational benefit.

The opinion is significant because the court adopted the criteria provided by the Department of Labor for whether interns should be paid. Fox Searchlight Pictures argued that a “primary benefit test” should have been adopted instead.

Under the Department of Labor standards adopted in the decision, for an internship to be unpaid, it must meet the following requirements:

The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;

The internship experience is for the benefit of the intern;

The intern does not displace regular employees, but works under close supervision of existing staff;

The employer that provides the training derives no immediate advantage from the activities of the intern, and on occasion its operations may actually be impeded;

The intern is not necessarily entitled to a job at the conclusion of the internship;

The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

The “Black Swan” decision should give employers pause to consider whether their unpaid interns are appropriately categorized as such. The decision has inspired similar lawsuits and others are sure to follow. Employers are advised to carefully read the above criteria and perform an honest evaluation as to whether unpaid interns should in fact be compensated for their work.